In Search of Long-Term Fiscal Reform
It’s no secret that the national debt continues to balloon.
At nearly $14 trillion, the debt will only increase without substantial action, former U.S. Sens. Alan Simpson and former White House Chief of staff Erskine Bowles, the co-chairs of the National Commission on Fiscal Responsibility and Reform, say. Their report predicts the debt will more than triple by 2035.
In fact, the report, “The Moment of Truth,” says, “By 2025 revenue will be able to finance only interest payments, Medicare, Medicaid, and Social Security. Every other federal government activity—from national defense and homeland security to transportation and energy—will have to be paid for with borrowed money. ... Interest on the debt could rise to nearly $1 trillion by 2020.”
Simpson, the former U.S. senator from Wyoming, will discuss the report, and what it could mean for states, at The Council of State Governments’ Growth and Prosperity Summit of the States March 26–30 at the Mohegan Sun in Uncasville, Conn.
President Barack Obama charged the commission—with Simpson and Bowles as co-chairs—with identifying policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run. Its primary purpose was to propose recommendations designed to balance the budget, excluding interest payments on the debt, by 2015. It also was asked to develop recommendations to improve the long-term fiscal outlook, including changes to entitlement spending.
The commission says its six-part plan, released in December, would reduce the debt by $4 trillion through 2020, reduce the deficit to 2.3 percent of gross domestic product by 2015, reduce tax rates, cap spending at 21 percent of GDP and ensure lasting Social Security solvency. It also would stabilize the debt by 2014 and reduce debt to 60 percent of GDP by 2023 and 40 percent by 2035.
Some of its recommendations, however, have drawn widespread criticism. The plan targets, for instance, elimination of the mortgage interest tax deduction for homeowners and places spending caps on all federal departments, including the Department of Defense. It would also revamp Social Security, Medicaid and Medicare and add a 15-cent federal gasoline tax to pay for road projects.
“It’s painful, there’s no easy solution,” Bowles said at a forum in December sponsored by the Wyoming Business Council in Cheyenne, according to the Casper Journal. “We can’t grow our way out of this problem, we can’t cut our way out, we can’t tax our way out.”
Simpson and Bowles say while their plan is a starting point for serious debate on the issue, if it was adopted without change, it would reduce the government’s annual deficit spending from a projected $1.2 trillion in 2012, to $279 billion by 2020, and arrive at a balanced budget by 2035.
“For God’s sake, let’s have some long-term fiscal reform,” Simpson said at the forum.